Terex Corp. (TEX) reported second quarter results delivering an EPS of 1 cent versus a loss of 12 cents per share.
The second quarter noted some special items including an after-tax gain of approximately $26 million, or 22 cents per share, on the sale of approximately 1.4 million shares of Bucyrus International, Inc. common stock and restructuring charges of approximately $33 million, or 29 cents per share, relating to the Cranes segment, where the company continues its cost reduction and manufacturing footprint rationalization. Excluding these items adjusted EPS amounted to 10 cents, failing the Zacks Consensus Estimate of 17 cents.
Net sales at Terex increased 37.8% to $1.49 billion from $1.08 billion in the year-earlier quarter. After adjusting for the translation effect of foreign currency exchange net sales grew 30% on a year-over-year basis.
Costs and Margins
Cost of goods sold amounted to $1273.3 million versus $925 million in the year-earlier quarter. Gross profit increased substantially to $214.9 million from $154.9 million in the year-ago quarter. Consequently, gross margins increased very mildly by 10 basis points year over year to 14.4% during the quarter.
Selling, general and administrative expenses increased to $208.1 million from $165.3 million in the year-ago quarter. The company reported an operating income of $6.8 million compared with an operating loss of $10.4 million. However, operating margins decreased 50 basis points year over year to 0.5% in the quarter.
Segmental Performance
Total revenue at Aerial Work Platforms was $484.1 million compared with $232.4 million in the year-ago quarter. Gross profit in the segment doubled to $75 million versus $33 million in the year-earlier quarter. Gross margin increased 130 basis points year over year to 15.5% in the quarter. The segment reported an operating income of $28.2 million versus a loss of $2.3 million in the prior-year quarter.
Net sales at Construction segment were $361.3 million versus $279.0 million in the year-ago quarter. Gross profit of the segment increased more than two folds to $44.1 million versus $18.9 million in the year-earlier quarter. Consequently, gross margins rose 540 basis points year over year to 12.2% in the quarter. Operating loss of the segment narrowed to $6.8 million from a loss of $16.8 million in the year-earlier quarter. Consequently, operating margin contracted 410 basis points year over year to 1.9%.
Cranes segment reported total revenue of $464.1 million versus $449.1 million in the year-earlier quarter. Gross profit of the segment declined to $50.4 million versus $79.1 million during the previous year period. Consequently, gross margins contracted 670 basis points year over year to 10.9% in the quarter. The segment reported an operating loss of $34.0 million versus operating profit of $17.0 million in the year-earlier quarter. Consequently, operating margins declined 350 basis points year over year to 7.3% in the quarter.
Net sales at Material Processing increased to $188.7 million from $135.5 million in the prior-year quarter. Gross profit increased to $40.8 million from $24.2 million in the year-earlier quarter, thereby expanding gross margins by 370 basis points year over year to 21.6%. Operating income of the segment more than doubled to $21.1 million from $9.2 million in the prior-year quarter, thereby expanding operating margins by 440 basis points year over year.
Financial Position
As of June 30, 2011 cash and cash equivalents amounted to $702.0 million versus $894.2 million as of December 31, 2010. Cash from operating activities was an outflow of $218.9 million at the end of the second quarter versus an outflow of $240.4 million at the end of the previous year period. The debt-to-capitalization ratio improved to 38% as of June 30, 2011 versus 40% as of March 31, 2011, and 45% as of December 31, 2010.
Outlook
Management now expects full year net sales in the range of $5.4 billion to $5.6 billion, up from the previous range of $5.2 billion to $5.5 billion. Full year EPS is projected in the range of 40 cents to 60 cents, lower than the previous range of 60 cents to 75 cents. The remainder of the year is also expected to generate free cash flow in the range of $350 million to $400 million.
Our Take
Terex has been continuously posting losses since the first quarter of fiscal 2009, affected by the global economic slowdown. Particularly hurt were the Aerial Work Platforms and Construction businesses. Even though the Aerial Work Platforms segment has turned around, the Construction segment continues to book losses. However, an increase in backlog and order quotation activity in the quarter looks promising.
Further, the Cranes segment remains in loss territory. The company expects the segment to be challenged in the first half of 2011 as it negotiates the effects of inconsistent demand for many of its larger cranes during 2010. However, the long-term outlook for the segment looks good considering the significant increase in demand from North America, as well as a continued increase in activity in developing markets.
We appreciate Terex’s initiatives to invest in developing markets, which make up approximately one-third of the company’s overall sales. A substantial improvement in demand in these markets could offset the weakness that the company is facing in its mature markets. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.
Westport, Connecticut-based Terex Corporation is a global manufacturer of a broad range of equipment for the construction, infrastructure, quarrying, mining, shipping, transportation, refining, energy and utility industries.
The company’s manufacturing facilities are located in the U.S., Canada, Europe, Australia, Asia and South America. It operates through four business segments: Aerial Work Platforms, Construction, Cranes and Materials Processing. Terex competes with the likes of Caterpillar Inc. (CAT), Deere & Company (DE) and Komatsu Ltd. (KMTUY).
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